Conceptual Framework for Financial Reporting

Relevance
Information about assets, liabilities, equity, income and expenses is relevant
to users of financial statements. However, recognition of a particular asset or
liability and any resulting income, expenses or changes in equity may not
always provide relevant information. That may be the case if, for example: 
(a)
it is uncertain whether an asset or liability exists (see paragraph 5.14);
or
(b)
an asset or liability exists, but the probability of an inflow or outflow
of economic benefits is low (see paragraphs 5.15–5.17).
5.8
5.9
5.10
5.11
5.12
Conceptual Framework
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The presence of one or both of the factors described in paragraph 5.12 does
not lead automatically to a conclusion that the information provided by
recognition lacks relevance. Moreover, factors other than those described in
paragraph 5.12 may also affect the conclusion. It may be a combination of
factors and not any single factor that determines whether recognition
provides relevant information.
Existence uncertainty
Paragraphs 4.13 and 4.35 discuss cases in which it is uncertain whether an
asset or liability exists. In some cases, that uncertainty, possibly combined
with a low probability of inflows or outflows of economic benefits and an
exceptionally wide range of possible outcomes, may mean that the recognition
of an asset or liability, necessarily measured at a single amount, would not
provide relevant information. Whether or not the asset or liability is
recognised, explanatory information about the uncertainties associated with it
may need to be provided in the financial statements.
Low probability of an inflow or outflow of economic benefits
An asset or liability can exist even if the probability of an inflow or outflow of
economic benefits is low (see paragraphs 4.15 and 4.38).
If the probability of an inflow or outflow of economic benefits is low, the most
relevant information about the asset or liability may be information about the
magnitude of the possible inflows or outflows, their possible timing and the
factors affecting the probability of their occurrence. The typical location for
such information is in the notes.
Even if the probability of an inflow or outflow of economic benefits is low,
recognition of the asset or liability may provide relevant information beyond
the information described in paragraph 5.16. Whether that is the case may
depend on a variety of factors. For example:
(a)
if an asset is acquired or a liability is incurred in an exchange
transaction on market terms, its cost generally reflects the probability
of an inflow or outflow of economic benefits. Thus, that cost may be
relevant information, and is generally readily available. Furthermore,
not recognising the asset or liability would result in the recognition of
expenses or income at the time of the exchange, which might not be a
faithful representation of the transaction (see paragraph 5.25(a)).
(b)
if an asset or liability arises from an event that is not an exchange
transaction, recognition of the asset or liability typically results in
recognition of income or expenses. If there is only a low probability
that the asset or liability will result in an inflow or outflow of
economic benefits, users of financial statements might not regard the
recognition of the asset and income, or the liability and expenses, as
providing relevant information.
5.13
5.14
5.15
5.16
5.17
Conceptual Framework
© IFRS Foundation
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